ii view: Dunelm generates record sales but profit falls

Full-year results to 1 July

• Revenue up 5.5% to £1.64 billion
• Pre-tax profit down 8% to £193 million
• Final dividend of 27p per share
• Total ordinary dividend for the year up 5% to 42p per share

Chief executive Nick Wilkinson said: 

"In a period of extensive economic uncertainty, we have maintained our focus on enhancing our customer proposition, expanding our offer whilst staying fully committed to value and making every pound count.

"We are excited about our future growth opportunity and more confident than ever that our commitment to value and tireless focus on improving the experience for our home-loving customers will leave us well placed to deliver sustainable growth in the future."

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ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) today unveiled record annual sales, with profits for the year ahead expected to grow given easing cost headwinds. 

Sales for the year to 1 July 2023 climbed 5.5% to £1.64 billion as the retailer’s product range and store numbers continued to grow. But pre-tax profit fell 8% from a prior year record to £193 million, hindered by elevated costs such as those for freight. 

Shares in the FTSE 250 company retreated marginally in UK trading having come into this latest news up by around a tenth year-to-date. Fellow homewares chain Next (LSE:NXT) is up around a fifth in 2023, while DIY retailer Kingfisher (LSE:KGF) is down by over a tenth. The mid-cap index itself is down by just over 2%. 

Dunelm sells items ranging from curtains and bedding to furniture, with a push to increase its market share in furniture helping its product range to expand by 20,000 items since the full year 2022 to around 70,000 products. 

Opening three new stores over the year pushed its outlets to 180, with new openings potentially increasing to up to five per year near-term. 

A final dividend of 27p per share rose from 25p last year, taking the total payment for the year up 5% from 42p in 2022. Dunelm also announced a special dividend of 40p per share at the half-year results in April. 

A first-quarter trading update is scheduled for 19 October. 

ii view:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. Headquartered in Leicester, today it employs around 11,000 people, with product lines including specialist own brands and labels such as Dorma and Fogarty. With ongoing investment in its store outlets including revamps and relocations, 152 stores now include a Pausa coffee shop, offering hot and cold food and drinks.

For investors, higher costs including those for mortgages, rents and food may now be crimping customers’ ability to spend on homewares. Operational costs for businesses themselves remain elevated, while a price-to-net asset value ratio above the three-year average may suggest the shares are not obviously cheap. 

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More favourably, its value offering continues to appeal to cost pressured consumers, with its range of products now stretching into furniture and DIY. A high focus on cost control persists, more new stores are being opened, while digital sales are well established and now make up 36% of overall sales. 

For now, and despite ongoing risks, the return of over £1 billion to shareholders over the last 10 years through ordinary and special dividends, plus an estimated future dividend yield of close to 4% is likely to please income investors.   

Positives: 

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Elevated business costs

The average rating of stock market analysts:

Strong hold